SEC Seeks More Feedback on tZERO's Proposed Security Token Exchange

Apr 2, 2020 at 09:00 UTCUpdated Apr 2, 2020 at 13:51 UTC.The Boston Security Token Exchange needs to provide more information about how it would operate, multiple comment letters stated.

The U.S. Securities and Exchange Commission is extending the timeline for it to approve or disapprove operations by a security token exchange affiliated with Overstock's tZERO.In a letter dated April 1, the SEC presumably wasn't joking when it said it was looking for analysis and input on the BOX Options Exchange's proposed rule changes to commence operations of its new Boston Security Token Exchange.

In Wednesday's document, touching on one of these proposals, the SEC said it specifically wants feedback on whether the proposed exchange's operations are consistent with parts of the Securities Exchange Act of 1934, as well as whether the information it has provided so far are sufficient to make a ruling on approval.

"The Commission asks that commenters address the sufficiency of the Exchange's statements in support of the proposal, which are set forth in the Notice,72 in addition to any other comments they may wish to submit about the proposed rule change," the document said.

Conley stated the technology used to track ownership of the security token would not share a common distributed ledger.

"The most salient characteristic - indeed, the only unique characteristic - of the security token is its use of blockchain technology," Conley wrote.

The Nasdaq stock exchange also questioned what it saw as insufficient detail relating to digital securities infrastructure and its compatibility with existing equities market infrastructure as well as the impact on anti-fraud, customer protection and possible investor confusion.

Greene and Shrader both indicated the filing documents around the exchange had not been widely disseminated to the broader securities market.

Shrader, writing on a client's behalf, went further, saying that BSTX needs to provide more clarity around how security tokens would settle, how market participants would verify ownership of a security token in compliance with know-your-customer and anti-money-laundering rules, as well as a number of other issues.

BSTX needs to clarify why a blockchain-based exchange would be superior to a traditional one, he wrote.